Economic Outlook - July 2023

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Jul 28, 2023

QuantEco Research || India Macrobook Jul-23

We maintain our call of moderation in GDP growth to 6.0% in FY24 from 7.2% led by adverse global spillovers, impact of high interest rates on urban consumption, and fading of pent-up demand. While we maintain our FY24 CPI inflation forecast of 5.3%, the unanticipated sharp spike in food inflation over Jun-Jul is now providing a minor upside risk. Meanwhile, lack of visibility of achievement of 4% headline inflation target (even by FY25), and renewed tightening by key central banks can prompt MPC to remain on an extended pause through FY24. While we see the possibility of 10Y g-sec yield moving higher towards 7.25% in the near term, we continue to maintain our Mar-24 call of 7.00%. We expect Fed to lead the rate cutting cycle in 2024 – this is likely to weigh on the USD as clarity on the timing of Fed pivot emerges in the coming quarters. As such, we expect rupee to see backloaded appreciation (aided by a favorable BoP outlook), with USDINR likely to move towards 80 levels by Mar-24.